Assessing the demand for phytosterol-enriched products

Phytosterol is a healthful ingredient that helps reduce blood cholesterol levels. It hasbeen over ten years since the first phytosterol-enriched product, Benecol margarine, waslaunched in Finland in 1995; however, understanding of this product is still limited. Inaddition, it has been shown in the literature that health-related concerns have aninfluence on consumers’ decisions to consume harmful or beneficial ingredients.This study estimates the demand for three phytosterol-enriched products inthe categories of margarine, orange juice and yogurt. The objectives of this study are(1) to estimate price and expenditure elasticities for phytosterol-enriched brands andcomparative non-phytosterol brands, (2) to identify cannibalization effects with aproposed methodology, and, (3) to estimate the welfare effects associated with theintroduction of a product.Subsuming LA/AIDS, Rotterdam, CBS and NBR demand systems, theBarten synthetic demand system is applied to margarine weekly scanner data.Phytosterol-enriched margarine brands (Benecol and Take Control) commandedsignificantly higher prices relative to other margarine brands. Strong substitutability among the phytosterol brands was evident as suggested by the statistically significantand relatively large compensated cross-price elasticities.Cannibalization is defined as the competition between products offered bythe same firm. Cannibalization studies are important to multi-product firms because theyprovide insights into the benefits of offering product variety. In addition, theidentification and assessment of cannibalization are integral factors for strategicdecisions of new product introductions. However, there are no standard measures toidentify its effects. We use the Barten synthetic demand system along with twoconventional measures to illustrate that the use of cross-price elasticities derived from aflexible demand system is a viable alternative to identify cannibalization effects.The third objective analyzes the consumer welfare effects associated with anew functional food product introduction. Using the Barten synthetic model and pre- andpost-introduction scanner data, we estimate direct price and variety effects associatedwith the introduction of a new functional food product (i.e., phytosterol-enrichedproduct). With post-introduction data and an assumed demand structure, we alsoestimate indirect price effects. Our results suggest notable welfare effects consisting of arelatively small price effect and a large variety effect.